Energy stocks have seen a bit of recovery lately in Canada. This has brought some interest back to pipeline titan Enbridge (TSX:ENB), which has made a name for itself as the best of the best when it comes to dividends.
But there’s an issue here. Dividends are certainly not everything. And when it comes to Enbridge stock, shares haven’t increased at all in the last five years, seeing shares remain between $45 and $50 on the TSX today. And it doesn’t look like that will improve.
Analysts on hold
Analysts have given Enbridge stock a “hold” rating, despite remaining a fairly stable sector leader in the pipeline sector. It continues to have a leading oil transportation footprint, which includes expansion as well. That should continue as its earnings before interest, taxes, depreciation, and amortization (EBITDA) are supported by long-term contracts.
This allows the stock to continue its trajectory of dividend growth, though that has slowed down in the last few years. It’s now at a rate smaller than its peers, according to one analyst. So, while it used to deserve that premium share price, there is far less room for growth in the future.
Sure, you can grab a 7.58% dividend yield from Enbridge stock right now. But that dividend is growing at a slower and slower pace. And with more transferring to renewable energy sources, it’s unclear what future this pipeline company has.
Consider this instead
This is why now is a great time to consider other Canadian energy infrastructure stocks, such as TC Energy (TSX:TRP), which now looks oversold. The stock looks overdue for a huge rebound, with support from current and future energy infrastructure projects.
TRP stock continues to provide solid earnings from exposure to natural gas and its pipeline company. This sets up investors with long-term contracts similar to Enbridge stock. Its outlook is also looking less risky, thanks to significant capital expenditure savings as its Coastal GasLink pipeline construction soared higher. Now, it looks as though spending is back under control, aiming for half of what it spent in 2023.
All this allows for further dividend growth. And that will certainly bring attention to the stock, as it did for Enbridge stock. But the company has a lot more strength than Enbridge stock in this way. It now has a far more stable future in the next two to three years and with even more strength for its dividend through 2025. And the best part? Its valuation is also far better than its competitors’.
What you could get
If you were to pick up TRP stock right now, the fundamentals are strong, and valuations are cheap. The stock currently trades at 3.41 times sales and 1.74 times book value. Shares are down 10% in the last year, with analysts upping their outlook to a price target closer to $60 per share.
Meanwhile, you can grab a dividend yield of 7.11% as of writing. That’s far higher than the five-year average of 5.59% as of writing. So, if shares continue to climb to $60, here’s what you could receive in passive income from a $10,000 investment.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| TRP – now | $52 | 192 | $3.72 | $714.24 | quarterly | $10,000 |
| TRP – highs | $60 | 192 | $3.72 | $714.24 | quarterly | $11,520 |
It does seem quite likely that shares could increase to $60 in the next year. That would bring in returns of $1,520 and dividends at $714.24. That’s total passive income of $2,234.24 for TRP stock. And that’s something you simply won’t get with Enbridge stock.
